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Magnet case reveals blatant profit manipulation | accountingweb
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Magnet case reveals blatant profit manipulation

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This Christopher Lunn client’s scheme finally made it to tribunal, with Magnet Partnership’s “too good to be true” zero profit attracting HMRC’s attention.

4th Oct 2022
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There are some phrases that, as the opening sentence of a tribunal judgment, are guaranteed to arrest your attention. “If something sounds too good to be true, it probably is” certainly does that.

When the judge goes on, in her very next sentence, to point out that a partnership’s “profits returned in the tax returns for the years 2004/05 to 2014/15 were precisely zero regardless of turnover”, it is clear there was something decidedly fishy going on.

Murky history

Such was the case for the Magnet Partnership (TC08570), where Judge Anne Scott of the first tier tribunal (FTT) found herself dealing with a murky history of profit manipulation.

Magnet was a partnership that owned patents and other intellectual property, which it licensed to Abfad Ltd, a related company whose “primary business is industrial rope access and specialist coating services, such as tank lining”.

The partnership was established in 1999 at the suggestion of Abfad’s new tax adviser, Christopher Lunn (yes, that Christopher Lunn – the one who was sentenced in 2016 to five years’ imprisonment for tax evasion). Lunn also established a number of “family partnerships”, whose members were the directors and shareholders of Abfad and their children.

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Replies (17)

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By Justin Bryant
04th Oct 2022 13:52

He's a fool. He would have had no problems with HMRC had he simply just done dodgy R&D claims like everyone else, as until very recently everyone knew that HMRC did not bother policing those.

[Edit] Yes, I know, but corporate partners within an LP or LLP may be able to benefit from R&D tax credits if R&D is carried out by the partnership and anyway I'm sure you get my point.

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Replying to Justin Bryant:
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By Winnie Wiggleroom
04th Oct 2022 13:57

Or at least if they had made the figures look more realistic, idiotic

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By Hugo Fair
04th Oct 2022 14:21

Pretty basic stuff:

"The judge concluded: “At all times the sums paid to the family partnerships were drawings. Those could never be deductible. Drawings are never wholly and exclusively incurred for any taxpayer’s trade.”"

Well, who'd expect a professional adviser to know that?

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By Paul Crowley
04th Oct 2022 15:21

Amazed that there was anyone prepared to act defending such a hopeless case.
Really, harassment?
Magnet claimed that HMRC was motivated by malice towards clients and ex-clients of Christopher Lunn, and that the enquiries represented harassment.
In a letter to HMRC dated November 2019, their new agent wrote: “We are able (with invoices etc) to show that the inter entity payments were made for
legitimate commercial concerns and that thus the entities were properly trading.” However, “they said that in view of HMRC’s attitude they would not ‘trouble’ themselves to produce anything. Nothing has been provided.”

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By Postingcomments
04th Oct 2022 16:57

Sounds like the new accountant isn't much better than the last one.

Mind, client's pick their accountant based on what will be a "good fit for their way of working", shall we say

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Replying to Postingcomments:
paddle steamer
By DJKL
04th Oct 2022 17:07

IMHO there is nothing wrong with Tait Walker, we have consulted with them in the past.

Do you apply the same thought process to Barristers who act for defendants in criminal cases, taint by association?

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Replying to DJKL:
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By meadowsaw227
05th Oct 2022 09:44

Interesting take on it.
If a new client who happened to be a serial offender came my way I could/would not take them on.

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Replying to meadowsaw227:
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By farrcorfe
05th Oct 2022 10:49

Quite right too! Years ago when Lunn (whose practice was only 10 miles away from mine) was in the beam of the Eye of Sauron I had at least five of his clients contact me with a view to switching. 1,000 apologies but no can do, I said.

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Replying to meadowsaw227:
paddle steamer
By DJKL
05th Oct 2022 12:37

You might not take someone on as a client but someone needs to defend (act for) those individuals.

A long time ago (late 1970s) I had a very inebriated late night discussion re this very point with Ian Hamilton, KC, (one of the individuals who nicked the Stone of Destiny from Westminster in the 50s). I had your attitude re acting for known villains, Mr Hamilton persuaded me of the flaw in my thinking, everyone having a right to be represented.

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Replying to DJKL:
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By smbrown
05th Oct 2022 10:07

Please read the First-tier Tribunal (Tax) Transcript again.

Tait Walker (as was) was only involved in the case for a very short period of time.

As per the transcript we attended a meeting with HMRC on 3 September 2019 where a possible settlement was discussed.

On 4 September 2019, Tait Walker emailed HMRC referencing the meeting and passed on the contents of an email provided by the appellant.

"On 27 September 2019, Officer Harrop sent Tait Walker copies of a number of the seized documents stating that those would give an insight into how CLAC had manipulated accounts figures."

"On 14 November 2019, Milton & Co wrote to HMRC in reply to that letter."

Tait Walker's involvement in the case ended in September 2019.

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Replying to smbrown:
paddle steamer
By DJKL
05th Oct 2022 12:48

My apologies , I had not spotted that a Doctor Milton (of Milton & Co) took over matters.

Notwithstanding my other posts stand, someone needs to represent taxpayers (despite what they may have done) and the professionals ought not be tainted by the actions of their clients where they took no part in such actions.

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Replying to DJKL:
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By Postingcomments
05th Oct 2022 22:09

I don't disagree with the idea that everyone is entitled to a skilled advocate. eg I am aware that barristers are sworn to defend accused murderers etc to the best of their ability. I agree with all that.

But per the case, at least as far as I see it. Dr Milton (I think it is - and I don't think he is part of Tait Walker, but I am happy to be corrected) doesn't seem to be trying to get the client to the correct position with minimal penalties - which is what a responsible "next adviser" would do. He seems to be perpetuating the previous tax fraud and using pathetic "bluster" to try to cover up what went on before. (ie the whole "I can't be bothered to show you the invoices").

That inspired my observation that certain clients pick certain accountants. Very few clients are actually duped by dodgy accountants. It is that some clients want a more "aggressive" approach to "managing their tax" and their are plenty who will provide it.

I forget what our respective points were on all this, but I chuck this comment in nonetheless!

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Replying to Postingcomments:
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By smbrown
06th Oct 2022 09:06

Dr Milton has no connection whatsoever with Tait Walker.

To repeat "Tait Walker's involvement in the case ended in September 2019."

"On 14 November 2019, Milton & Co wrote to HMRC in reply to that letter."

I assume that Dr Milton is part of Milton & Co, but I am happy to be corrected.

Tait Walker were attempting to be the "responsible next adviser" that you accurately describe.

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By SteveHa
05th Oct 2022 09:49

Quote:
their new agent wrote: “We are able (with invoices etc) to show that the inter entity payments were made for legitimate commercial concerns and that thus the entities were properly trading.” However, “they said that in view of HMRC’s attitude they would not ‘trouble’ themselves to produce anything.

Soooo - they could have defended, but chose not to?

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Replying to SteveHa:
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By Andy Keates
05th Oct 2022 15:36

SteveHa wrote:

Soooo - they could have defended, but chose not to?

In the words of the White Queen, "Why, sometimes I’ve believed as many as six impossible things before breakfast."

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Replying to SteveHa:
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By Postingcomments
05th Oct 2022 22:18

Yes - if the case is so obviously in favour of the client, I will show HMRC a sample of invoices and ask them to consider their response.

Or, I think "the previous adviser was a fraudster (and the clients knew it - oops, don't say that bit out loud!) and I'm being paid to perpetuate this (because I am the classic disciplinary case of being an old man with a dodgy doctorate and a divorce and I've lived up the good money I've earned down the BMW showroom, so now I'm 60 and desperate) so I will lie and bluff and hope the Inspector just buys it. I mean, I went to the trouble of buying a doctorate and I'm old - surely that entitles me to some bluff and "Don't you know who I am?" style BS?..........

I'm glad that even HMRC has managed to call the bluff of these clients and their "Doctor Boomer". They picked their advisers and knew what was going on.

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By AndrewV12
06th Oct 2022 10:51

“most of the work that had been done by family antedated the years with which we are concerned”.

It gets worse.

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